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HMRC internal manual

Compliance Handbook

Penalties for Inaccuracies: Types of inaccuracy: Examples of deliberate but not concealed inaccuracy

You must check the date from which these rules apply for the tax or duty you are dealing with. See CH81011 for full details.

Example 1

Sarah takes £50 per week from her takings as ‘pocket money’. This money goes unrecorded when she adds up her weekly takings and enters the total into her records. Those records form the basis of Sarah’s turnover figure on her tax return, which she knows to be incorrect.

Sarah has deliberately recorded the wrong figure of sales in the business records. However there is no evidence of additional artificial or false records being produced to conceal this deliberate inaccuracy.

Example 2

Dave counts his stock at the year end and believes that it is worth £100,000. Aware that by reducing this value he can reduce his profits, Dave makes a totally unjustified provision against this of £50,000.

He supplies accounts and a balance sheet with his return and on the balance sheet shows the stock as being £100,000 less a provision of £50,000. There are no additional steps to conceal the understatement though it has been done deliberately.

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Example 3

Imran keeps accurate business records. When completing one of his VAT returns he decides to enter an inflated input tax figure in the return to reduce his declared net liability. He hopes that the false return will not be selected for checking.

Imran is liable to a penalty for a deliberate inaccuracy. However, he has not taken additional steps to conceal it.

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Example 4

Hugh is approved under the Registered Excise Dealer and Shipper (REDS) scheme, and acts as an Agent on behalf of several importers of excise goods. Hugh receives notification from one of his clients that four crates of beer have been received at his business premises. Hugh discharges the movement on the AAD (Administrative Accompanying Document).

However, on the next REDS return, Hugh decides only to declare the excise duty on the receipt of three crates, hoping that the return will not be checked on the next audit. Although Hugh is liable to a penalty for a deliberate inaccuracy, Hugh has not taken additional steps to conceal it.

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Example 5

Fiona is the personal representative of her late father’s estate. Her father owned a house but Fiona makes no attempt to establish its market value. She includes an estimated value in the IHT account based on what her father paid for the house many years before, when she knows it is clearly worth much more. Fiona has deliberately included a value that she knows to be incorrect in the IHT account. However, she has not taken other steps to conceal the under-valuation.

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Example 6

B Ltd purchased an avoidance scheme to reduce the tax on the sale of a hotel. But the team implementing the scheme muddled up the order of some of the transactions. Internal paperwork suggested that the directors of B Ltd were aware of this muddle, but proceeded anyway. This became apparent in our checks, and so the scheme failed.

The directors’ behaviour in relation to the scheme is deliberate. HMRC expects a person taking part in a complex transaction, particularly one with large tax consequences, to ensure that the transaction took place so that the return accurately reflects the facts as well as the predicted outcome. If the person is aware that the series of transactions has been confused they should take advice about the effects of this, in particular what the tax consequences will now be.